UPDATE 1-Chairman of India's Financial Tech arrested in fraud probe

MUMBAI May 7 (Reuters) - The chairman of Financial
Technologies (India) Ltd, Jignesh Shah, was arrested
on Wednesday as part of an investigation of fraud at a commodity
exchange owned by the Indian bourse operator, a Mumbai police
official said.

Shah has been under police investigation since August after
National Spot Exchange Ltd (NSEL), the commodities exchange
owned by Financial Technologies, abruptly suspended trade in
most of its commodities contracts on July 31.

Investigations by commodities regulator the Forward Markets
Commission showed what it said was a 55 billion rupee ($916
million) fraud, as the exchange defaulted on obligations to
market participants because it did not have enough collateral.

Rajvardhan Sinha, additional commissioner in the Mumbai
police unit that investigates white collar crime, said Shah had
run "a criminal conspiracy with other accused who were running
this exchange", referring to NSEL.

A Financial Technologies spokeswoman said the company was
working on a statement regarding the matter.

Financial Technologies and Shah have previously denied
knowledge of any fraudulent activity at NSEL, which ceased
operations in August.

Shah's arrest is the latest blow to Financial Technologies,
which also sells trading software.

The company was ordered by India's market regulator in March
to cut its stake in a separate commodities exchange,
Multi-Commodity Exchange of India Ltd (MCX), from 26
percent to 2 percent.

The commodities regulator had ruled that MCX was not "fit
and proper" to run a bourse.

Financial Technologies subsequently announced it would sell
the 24 percent MCX stake, although it has not yet completed the
sale.
($1 = 60.0725 Indian Rupees)
(Writing by Rafael Nam; editing by Tony Munroe and Tom
Pfeiffer)